US equities started strong on Monday and finished strong on Friday, but the 3 days in between were challenging and left all major US indices in the red for the week. Escalating covid-19 case counts in the US and potential trade disruptions from new lockdowns in China caused investors to reign in risk. Among US large caps, the biggest casualty was the energy sector which fell 7%. Traditional defensive sectors rallied, including utilities, healthcare, and real estate. Small and midcap stocks underperformed, as they often do when risk aversion rises.

International markets continue to be dominated by China. Driven by the twin concerns of rising regulation and slowing economic growth, the MSCI China Index finished at YTD lows after falling 7.7% on the week, and is now down nearly 33% from its February highs. See the Chart of the Week for a time series.

Bond markets were mixed last week. Treasuries rallied and credit spreads widened, driving price gains in safer bonds and declines in riskier ones. Oil prices fell sharply for the second consecutive week, and are now down nearly 17% from the highs of mid-July.

Economic news was mixed last week. On the positive side, jobless claims fell, industrial production and new residential building permits rose, and the Conference Board’s Leading Economic Index (LEI) posted a solid gain for the 5th consecutive month. On the other hand, housing starts and retail sales both dropped more than economists expected in July data.